PRESENTATION ON CREDIT RATING

AGENCIES OF INDIA

Presented By:
Mr. Sunil Agarwal
Mrs.Reena Yadav
Ms.Neelam Kamble
Mr.Sudeep Mandal
Mrs.Afreen Sayed
 What is Credit Rating?
 In simple words,Credit Rating is an
assessment of the credit worthiness of
individuals & corporation .
 It is based on the history of borrowing &
repayment as well as the availability of
assets & extent of liabilities.
 Need of Credit Rating
 Low Cost Information.
 Quick Investment Decision.
 Investor Protection.
 Facilitates formulation of public guidance
on institutional investment.
 Decision & documents

Rating Presentations
meetings, conference calls
, and /or site visits

Rating Committee

Appeal Process, Surveillance

If necessary
 What is Credit Rating
Agencies?
 A credit ratings agency is a company that
assigns credit ratings to institutions that
issue debt obligations (i.e. assets backed by
receivables on loans, such as mortgage-
backed securities)
 Credit Rating Agencies of
India
 Credit Rating Information Services of India
Limited (CRISIL).
 Investment Information of Credit Rating
Agency (ICRA).
 Credit Analysis & Research Limited
CARE).
Credit Rating Information
Services of India Limited
(CRISIL)
 Formation
 First credit agency incorporated
on 1st January ,1988.
 Promoted by ICICI alongwith
UTI and other financial
institution with an equity capital
of Rs. 4 crores
 IREVNA, international arm and
a division of CRISIL handles
international customers offers
independent information
,solution related to credt rating
& Risk assessment etc.
 Roopa Kudva- Managing
Director and Chief Executive
Officer, CRISIL & Region
Head, Standard & Poor's, South
Asia
 Objective
 The principal objective of CRISIL is to rate
the debt obligations of Indian companies.
 It’s rating guides the investors about the
risk of timely payment of interest and
principal on a particular debt instrument.
 Functions of CRISIL
• Ratings.
• Research.
i) CRISIL Research.
ii) CRISIL Fund Service.
iii) The Centre of Economy Research.
iv) Investment Research Outsourcing.
• Advisory
i) CRISIL Infrastructure Advisory.
ii) Investment & Risk Management Service.
 Rating Parameters
For Debenture:
• For High Investment Grades:
AAA (Triple Safety) – Highest Safety.
AA (Double Safety) - High Safety.
• For Investment Grades:
A – Adequate Safety
BBB (Triple B) – Moderate Safety
• For Speculated Grade:
BB - Inadequate Safety
B - High Risk
C - Substantial Risk
D - Default
 Rating Parameters (Contd.)
 Fixed Deposit Rating Symbols
–FAAA (triple A): Highest Safety
–FAA (double A): High Safety
–FA: Adequate Safety
–FB: Inadequate Safety
–FC: High Risk
–FD: Default
 Ratings for short-term instruments
–P-1: Timely payment very strong
–P-2: Strong
–P-3: Adequate Safety
–P-4: Minimal
–P-5: Expected to be in default on maturity or is in default
Investment Information &
Credit Rating Agency of
India Limited (ICRA)
 Formation
 Set up in 1991.
 Established by Industrial Finance
Corporation
 Today, ICRA and its subsidiaries
together form the ICRA Group of
Companies (Group ICRA).
 ICRA and its subsidiaries together
form the ICRA Group of
Companies (Group ICRA)
 It is a Public Limited Company,
with its shares listed on the Bombay
Stock Exchange and the National
Stock Exchange.
 Has a tie-up with Moody Investor
Service in the area of technical
service which benefit in-house
research capabilities.
 Mr. Naresh Takkar-Managing
Director ,Mr. P.K Chaudhary –
Vice Chairman & Group CEO.
  Group ICRA

Credit Managing IT Information

Rating / Consultant (Software) Services /KPO
Grading    

ICRA Management ICRA Techno

ICRA Analytics Ltd. ICRA Online
Consulting Services
LTD. Ltd.
Ltd

ICRA AXIOM
Sapphire INC. Technologies
Ltd.
 Objectives of ICRA
 To assist investors in making well informed
investment decision
 To provide regulators with a market driven
system to encourage the healthy growth of
the capital markets in a disciplined manner
without costing an additional burden on the
Government for this purpose.
 Functions
 Rating Services.
 Information Services.
 Advisory Services.
 Grading Services.
 Rating Parameters
 For Long Term Debenture Bonds & Preference Shares:
LAAA: Highest Safety
LAA : High Safety
LA : Adequate Safety
LA : Adequate Safety
LBBB : Moderate Safety
LBB : Inadequate Safety
LB : Risk prone
LC : Substantial Risk
LD : Default, Extremely speculative
 For Medium Term including Fixed Deposit:
MAAA: Highest Safety
MAA : High Safety
MA : Adequate Safety
MB : Inadequate Safety
MC : Risk prone
 Rating Parameters (Contd.)
 For Short Term including Commercial Papers:
A-1: Highest Safety
A-2: High Safety
A-3: Adequate Safety
A-4: Risk prone
A-5: Default
Credit Analysis & Research
Limited (CARE)
 Formation
 Set up in 1993.
 Formed jointly by
investment companies,
banks & finance
companies.
 Recognized by SEBI,
Government of India &
Reserve Bank of India etc.
 It has three largest
shareholder SBI ,IDBI &
Canara Bank.
 Shri. O.V Bundellu -
Chairman
 Objectives of CARE
 To earn customer satisfaction & investor
confidence through fairness & professional
excellence.
 To provide state of art services of securities
rating ,information & related services of
international standard.
 Functions of CARE
 Rating Services
 Information Services
 Advisory Services
a) Credit Reports
b) Sector Studies
c) Financial Restructuring
 Grading Services
 Rating Parameters
 For Long Term Debt Instruments
CARE AAA: Highest Safety
CARE AA : High Safety
CARE A : Adequate Safety
CARE BB : Inadequate Safety
CARE B : High Risk
 For Medium term Debt Instruments
CARE AAA: Highest Safety
CARE AA : High Safety
CARE A : Adequate Safety
CARE BB : Inadequate Safety
CARE C : High Risk
 Rating Parameters (Contd.)
 Short term debt instruments:
PR 1: Superior capacity
PR 2: Strong capacity
PR 3: Adequate capacity
PR 4: Minimal degree of safety
PR 5: Default or likely in default on maturity
 Credit Analysis Rating
CARE 1: Excellent Debt Management Capacity
CARE 2: Very good Debt Management Capability
CARE 3: Good capability for Debt Management
CARE 4: Barely satisfactory capability for debt management
CARE 5: Poor capability for debt management
Advantages ,Disadvantages
& Measures of Credit Rating
Agencies in India
 Advantages of Credit Rating
Agencies
 For Corporates.
 For Investors.
 Disadvantages of Credit
Rating Agencies
 Credibility of rating given by this agencies
is questionable.
 Concealment of material information
 Difference in rating by two agencies.
 No audit is performed and rely on the
information provided by the client.
 Frequent changing of grading create
confusion.
 Certain Measures taken by
SEBI
 Agencies must recognise the defaulters.
 Must ensure no marketing development & the employees
involved in credit rating process must not own share of the
issuer.
 Must publish information on historical default rates.
 Must disclose fees charged to the client in rating debt &
default rates.
 Must maintain records which contain details of discussion
held with stake holder ,rating committee including voting
details etc.
Summary & Conclusion
 Summary & Conclusion
 What is Credit Rating?
 Need of Credit Rating?
 Credit Rating Process?
 Type of Credit Agencies
 CRISIL (Formation,Functions ,Rating Parameters)
 ICRA (Formation,Functions ,Rating Parameters)
 CARE (Formation,Functions ,Rating Parameters)
 Advantages ,Disadvantages & Measures